PAS 36 Impairment of Assets

Estimated of future cash flows normally would cover projections over a maximum of A.Five years B. Ten years C. Fifteen years D. Twenty years

A Five years

When allocating an impairment loss, such loss should reduce the carrying amount of which asset first? A. Property, plant and equipment B.Intagible Assets C. Goodwill D. Current Assets

C Goodwill

When assessing the recoverable amount of assets that have previously been subject to an impairment loss, which of the following indicators assist in providing external evidence that an impairment loss has reversed? A. The asset's market value has decreased significantly during the period B. Significant changes with an adverse effect on the entity have taken place C. Market interest rates have decreased during the period. D. Internal reporting sources indicate that the economic performance of the asset will not be as good as expected

C Market interest rates have decreased during the period.

Which statement is incorrect regarding corporate assets? A. Corporate assets are assets other than goodwill that contribute to the future cash flows of both the cash generating unit under review and other cash-generating units. B. Corporate assets include group or divisional assets such as the building of a headquarters or a division of the entity, EDP equipment or a research center. C. The distinctive charateristics of corporate assets are that they generate cash inflows independently of other assets or group assets and their carrying amount can be fully attributed to the cash-generating unit under review. D. If there is an indication that a corporate asset may be impaired, recoverable amount is determined for the cash generating unit or group of cash generating units to which the corporate asset belongs, and is compared with the carrying amount of this cash generating unit or group of cash generating units

C The distinctive charateristics of corporate assets are that they generate cash inflows independently of other assets or group assets and their carrying amount can be fully attributed to the cash-generating unit under review.

Recoverable amount is

The higher of an assets fair value less costs of disposal and its value in use.

A cash generating unit is

The smallest group of assets that generates independent cash flows from continuing use

Which statement is incorrect regarding impairment of goodwill in accordance with PAS 36? A. To test for impairment, goodwill must be allocated to each of the acquirer's cash generating units or groups of cash generating units, that are expected to benefit from the synergies of the combination B. A cash generating unit to which goodwill has been allocated shall be tested for impairment at least annually by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit C. Reversal of an impairment loss for goodwill is prohibited D. All the statements are correct

D All the statements are correct

PAS 36 does not apply to which of the following assets? A. Investment in associates B. Investment property that is measured using the cost model C. Property, Plant and equipment that is measured using the revaluation model D. Biological assets measured at fair value less costs to sell

D Biological assets measured at fair value less costs to sell

Internal sources of information indicating that an asset may be impaired include A. There are observable indications that the asset's value has declined during the period significantly more than would be expected as a result of the passage of time or normal use. B. Significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated. C. Market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset's value and decreased the asset's recoverable amount materially. D. Evidence is available of obsolescence or physical damage of an asset.

D Evidence is available of obsolescence or physical damage of an asset.

PAS 36 applies to which of the following assets? A. Financial assets within the scope of PAS 39 B. Inventories C. Non-current assets held for sale D. Intangible assets

D Intangible assets

Reversal of impairment loss is allowed if A. The recoverable amount of the asset becomes higher than its carrying amount because of the 'unwinding' of the discount. B. The loss is related to acquired goodwill C. Either a or b D. Neither a nor b

D Neither a nor b

First statement: After an impairment loss is recoverable amount becomes the basis for the impaired asset and is used to calculate depreciation in future periods Second statement: A recovery of impairment for a tangible long lived asset is limited to the carrying value that would have been reported had the impairment not occurred. A. True True C. False True B. True False D. False False

A

Twinkle corporation has one division that performs machining operations on parts that are sold to contractors. A group of machines have an aggregate cost and accumulated depreciation on December 31, 2016 as follows: Machinery 90,000,000 Accumulated depreciation 30,000,000 The machines have an average remaining life of 4 years. The fair value less cost of disposal of this group of machines in an active market is determined to be 45,000,000. The financial forecast for this group of machines reveals the following cash inflows and cash outflows for the next four years Cash inflows Cash outflows 2017 30,000,000 12,000,000 2018 32,000,000 17,000,000 2019 26,000,000 14,000,000 2020 16,000,000 6,000,000 Compute for the impairment loss in 2016 assuming that the appropriate discount rate is 8% A. 13,598,700 C. 15,000,000 B. 14,299,350 D. O

A 13,598,700

Riley acquired a non-current asset on 1 January 2012 at a cost of 100,000 which had a useful economic life of ten years and a nil residual value. The asset had been correctly depreciated up to 31 December 2016. At that date the asset was damaged and an impairment review was performed. On 31 December 2016, the fair value of the asset less costs to sell was 30,000 and the expected future cash flows were 8,500 per annum for the next five years. The current cost of capital is 10% and a five year annuity of 1 per annum at 10% would have a present value of 3·79 What amount would be charged to profit or loss for the impairment of this asset for the year ended 31 December 2016? A 17,785 C 30,000 B 20,000 D 32,215

A 17,785

One of the cash-generating units of Tweak Corporation is that associated with the manufacture of wine barrels. At 31 December 2015. Tweak Corporation believed, based on an analysis of economic indicators, that the assets of the unit were impaired. The carrying amounts the assets of the unit 31 December 2015 were: *Buildings, net (Depreciated at P60,000 per annum) = P240,000 *Machinery, net (Depreciated at P45,000 per annum) = P180,000 *Goodwill = P15,000 *Inventory = P80,000 *Receivables, net (Allow for doubtful debts of P5,000) = P35,000 *Cash = P20,000 **Total= P570,000 Tweak Corporation determined the value in use of the unit to be P535,000. The receivables were considered to be collectible, except those considered doubtful During 2016, Tweak Corporation increase in the depreciation charge on building to P65,000 per annum, and to P50,000 per annum for factory machinery. The inventory on hand at 31 December 2015 was sold by the end of 2016. At 31 December 2016, Tweak Corporation, due to a return in the market to the use of traditional barrels the recoverable amount of the cash-generating unit to be P20,000 greater than the carrying amount of the unit. 1. How much is the carrying amount of building at 31 December 2015 after allocating impairment loss? A. 230,000 B. 224,300 C. 231,028 D. 228,571 2. How much is the carrying amount of the factory machinery at 31 December 2016 after the reversal of impairment A. 135,000 B. 131,793 C. 131,322 D. 123,271

A 230,000 C 131,322

Los Company purchased Banos Company for P100,000,000. The net assets of Banos Company on the date acquisition amounted to P80,000,000. Thus, ther is a goodwill of P20,000,000. Banos Company has three segments, each of which is considered a cash generating unit. The goodwill is allocated respectively to segments. One, Two, and Three, 5,000,000, 6,000,000 and 9,000,000 On December 31, 2016, Segment One suffered significant losses and its recoverable amount is 30,000,000. On december 31, 2016. The carrying amount are as follows: Segment One 28,000,000 Segment Two 50,000,000 Segment Three 67,000,000 Goodwill 20,000,000 In its 2016 income statement, Los Company should report impairment loss at A. 3,000,000 C. 5,000,000 B. 2,000,000 D. 1,000,000

A 3,000,000

Protoss Corporation acquired a patent right on July 1, 2013 for P250,000. The remaining a legal wife on the date of purchase is 15 years; However, due to rapidly changing technology, management estimates that the remain useful life on July 1, 2013 is only 5 years At January 1, 2014, management is uncertain that the process can actually be made economically feasible, and decides t write down the patent to an estimated recoverable amount of P75,000. Amortization will be taken over 3 years from that point. On January 1, 2016, having perfected the related production process, the entity adopts the revaluation model to measure the patent. The patent now has a fair value of P300,000. Furthermore, the estimated remaining useful life is now believed to be 5 years How much can be recognized as gain on impairment recovery in 2016 profit or loss? A. 150,000 C. 275,000 B. 100,000 D. 175,000.

B 100,000

On January 1, 2015, Bianca Inc. purchased a patent with a cost 1,160,000 useful life of 5 years. The company uses straight line depreciation. At December 31, 2016, the company determines that impairment indicators are present. the fair valueless cost to sell the truck is estimated to be ₱540,000. The patent's value-in-use is estimated to be ₱565,000. the asset's remaining useful life is estimated to be 2 years. Bianca's 2016 income statement will report loss on Impairment of A. 15,000 C. 156,000 B. 131,000 D. 363,000

B 131,000

On July 1, 2016, Hansel, Inc. acquired Gretel Company in a business combination. As a result of the combination, the following amounts of goodwill were recorded for each of the three reporting units of the acquired company: Retailing 300,000 Service 200,000 Financing 400,000 Determine the amount of goodwill impairment that should be recorded by Hansel at December 31,2016: A. 250,000 C.100,000 B.150,000 D. 0

B 150,000

Tusk Company purchased on January 1, 2014 at a cost of 10,000,000. This equipment was depreciated over its useful life of ten years with a residual value of 10%. On December 31,2015 Tusk determined that the recoverable amount of the equipment was only 5,000,000 with no residual value and appropriately recognized impairment loss. However on December 31, 2016, the fair value had increased to 7,000,000 and the management of Tusk deensed to reversed the impairment that was previously recorded. What is the gain on impairment to shown on 2016 income statement? A. 3,000,000 C. 2,500,000 B. 2,625,000 D. 2,925,000

B 2,625,000

Big Company acquired Small Company on January 1. As part of the acquisition, P5,000 in goodwill was recognized; this goodwill was assigned to Big's Internet Applications reporting unit. During the year, the Internet Applications reporting unit reported revenues of P8,000. Publicly-traded companies with operations similar to those of the Internet Applications unit had price-to-revenue ratios averaging 1.70. The fair values and book values of the assets and liabilities of the Internet Applications reporting unit are as follows: Book Fair Values Values Identifiable Assets $19,500 $19,000 Goodwill 5,000 ??? Liabilities 6,500 6,500 How much should be recognized as goodwill impairment loss? A. 4,400 C.5,500 B. 3,900 D. 5,000

B 3,900

On July 1, 2013, Tussie Corp. purchased computer equipment at a cost of P360,000. This equipment was estimated to have 6-year life with no residual value and was depreciation by the straight line method. On January 3, 2016, Tussie determined that this equipment could not longer process data efficiently, its value had been permanently impaired, and P70,000 could be recovered over the remaining useful life of the equipment. What carrying amount should Tussie report on its December 31, 2016 statement of financial position for this equipment? A. P 0 B. P50,000 C. P70,000 D. P150,000

B 50,000

Tweed Inc. reported an impairment loss of 150,000 on its income statement for the year ended December 31,2015. This loss was related to an item of equipment which Tweed intended to use in its operations. On the company's December 31, 2015 statement of financial position, Tweed reported this equipment at 920,000 and, as of December 31, 2015, Tweed estimated that this equipment would be used for another five years. On December 31, 2016, Tweed determined that the recoverable amount of its impaired equipment had increased by 25,000 over its recoverable amount at December 31,2015. The Increase in recoverable amount is due to the unwinding of discount. On the company's December 2016 statement of financial position, what amount should be reported as the carrying amount for this equipment? A. 761,000 C. 945,000 B. 736,000 D. 856,000

B 736,000

When calculating the estimated of future cash flows, which of the following cash flow should not be included? A. Cash flows from disposal B.Income tax payment C. Cash flows from the sale of assets produced by the asset D. Cash outflows on the maintenance of the asset

B Income tax payment

An impairment loss relates to an asset that has been revalued should be recognized in A. Profit or Loss B. Revaluation reserve that relates to the revalued asset C. Opening retained profits D. Any reserve in equity

B Revaluation reserve that relates to the revalued asset

An entity has an oil platform in the sea. The entity has to decommission the platform at the end of its useful life, and a provision was set up at the commencement of production. The carrying value of the provision is 8 million. The entity has received an offer of 20 million (selling costs 1 million) for the rights to the oil platform, which reflects the fact that the owners have to decommission it at the end of its useful life. The value-in-use of the oil platform is 26 million ignoring the decommissioning costs. The current carrying value of the oil platform is 28 million. How much should be recognized as impairment loss? A. 10,000,000 C.1,000,000 B. 2,000,000 D. 0

C 1,000,000

At reporting date, the carrying amount of a cash generating unit was considered to be have been impaired by 1,000,000. The unit included the following assets: Land 3,000,000; Building 2,000,000; Goodwill 500,000. The fair value of land is reliably determined to be 2,800,000. The carrying amount of building after impairment loss is A. 2,000,000 C. 1,700,000 B. 1,800,000 D. 1,600,000

C 1,700,000

Tuxedo Company acquired a machine for P6,400,00 on August 31, 2013. The machine has a 5-year life, a P1,000,000 salvage value, and was depreciated using the straight line method. On May 31, 2016 a test for recoverability reveals that the expected net future undiscounted cash inflows related to the continued use and eventual disposal of the machine total P3,000,000. The machine's fair value on May 31, 2016, what is Tuxedo's depreciation for June 2016? A. P127,040 B. P111,110 C. P100,000 D. P45,000

C 100,000

Twig Company reported an impairment loss of P40,000,000 in its income statement for the year 2015, This was related to an equipment which was acquired on January 1, 2014 with cost of 25,000,000 useful life of 10 years and no residual value. On December 31, 2015 statement of financial position. Twig reported this asset at P16,000,000 which is the recoverable amount on such date. On December 31, 2016. Twig determined that the recoverable amount of its impaired asset had increased to P19,000,000. The straight line method is used in recording depreciation of this asset. Compute the amount of gain on impairment recovery o be recognized in 2016 profit or loss. A. 5,000,000 C. 3,500,000 B. 4,000,000 D. 0

C 3,500,000

Jenus owns a company called Klassic Kars. Extracts from Jenus consolidated statement of financial position relating to Klassic Kars are: Goodwill P80,000,000 Franchise costs P50,000,000 Restored vehicles ( at cost P90,000,000 Plant P100,000,000 Others net assets P50,000,000 Total = 370,000,000 An impairment review at December 31, 2016 has estimated that the value of Klassic Kars as a going concern is only P240 million. This franchise agreement contains a sell back clause, which allows Klassic Kars to relinquish the franchise and gain a repayment of P30 million from the franchisor. The restored vehicles have an estimated realizable value P115 million How much is the carrying amount of Plant after impairment loss is recognized? A. P66,666,667 B. P75,000,000 C. P80,000,000 D. 82,800,000

C 80,000,000

On January 2, 2015, Lutz Inc. purchased a patent with a cost 940,000 a useful life of 4 years. At December 31, 2015, and December 31, 2016, the company determines that impairment indicators are present. The following information is available for impairment testing at each year end: 12/31/2015 12/31/2016 Fair value less costs to sell 715,000 420,000 Value-in-use 750,000 445,000 No changes were made in the asset's estimated useful life. The company's 2016 income statement will report A. Amortization Expense of 235,000 B. Amortization Expense of 235,000 and Loss on Impairment of 10,000. C. Amortization Expense of 235,000 and a Recovery of Impairment of 45,000. D. Loss on impairment of 190,000.

C Amortization Expense of 235,000 and a Recovery of Impairment of 45,000.

The level of testing for goodwill impairment is the A. Reporting unit. B. Subsidiary companies. C. Cash-generating unit. D. None of the above.

C Cash-generating unit.

Under the revaluation model, an item of property, plant and equipment whose fair value can be measured reliably shall be carried at a revalued amount. Revalued amount means A. Fair value at the date of the revaluation. B.Fair value at the date of the revaluation less any accumulated depreciation and any accumulated impairment losses. C.Fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. D.Cost less any accumulated depreciation and accumulated impairment losses.

C Fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

When deciding on the discount rate that should be used, which factors should not be taken into account? A. The time value of money B. Risk that relate to the asset for which future cash flow estimates have not been adjusted C. Risk specific to the asset for which future cash flow estimate have been adjusted D. Pretax rates

C Risk specific to the asset for which future cash flow estimate have been adjusted

Which statement is incorrect regarding the change in an asset's carrying amount as a result of revaluation? A. The increase shall be recognized in other comprehensive income and accumulated in equity under the heading of revaluation surplus B. The increase shall be recognized in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognize in profit or loss C. The decrease shall be recognized in other comprehensive income D.The decrease shall be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset

C The decrease shall be recognized in other comprehensive income

Which of the following is subject to impairment in accordance with PAS 36? A. Biological Assets B. Investment property under the fair value model C. Property, plant and equipment under the revaluation model D. None of the above

C. Property, plant and equipment under the revaluation model

Tutor CO. determined that, due to obsolescence, equipment with an original cost of P900,000 and accumulated depreciation at January 1, 2016 of P420,000 had suffered permanent impairment and as a result should have a carrying value of only P300,000 as of the beginning of the year, In addition, the remaining useful life of the equipment was reduced from 8 years to 3. In its December 31, 2016, statement of financial position, what amount should Tutor report as accumulated depreciation? A. P100,000 B. P520,000 C. P600,000 D. 700,000

D 700,000

Autobots Gottling purchased for P800,000 a trademark for a very successful soft drink it markets under the name OK!. The trademark was determined to have an indefinite life. A competitor recently introduced a product that is in direct competition with the OK! product, thus suggesting the need for an impairment test. Data gathered by the entity suggests that the useful life of the trademark is still indefinite, but the cash flows expected to be generated by the trademark have been reduced either to P30,000 per year (with a probability of 80%) or to 60,000 per year (with 20% probability). The appropriate risk-free interest rate is 5%. The appropriate risk-adjusted interest rate is 10% The loss on impairment of trademark is A.440,000 C.200,000 B.320,000 D.80,000

D 80,000

Irrespective of whether there is any indication of impairment, an entity shall test the following assets for impairment annually: A. Intangible asset with an indefinite useful life B. Intangible asset is not yet available for use C. Goodwill acquired in a business combination D. All of the above

D All of the above

Which statement is correct regarding the revaluation model? A.Revaluations shall be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period. B.The frequency of revaluations depends upon the changes in fair values of the items of property, plant and equipment being revalued. C.If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued. D.All of the above.

D All of the above

Which staement is incorrect regarding allocation of impairment loss in a cash generating unit in accordance with PAS 36? A. First, reduce the carrying amount of any goodwill allocated to the cash-generating unit. B. Then, reduce the carrying amounts of the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. C. The carrying amount of an asset should not be reduced below the highest of its fair value less cost of disposal (if determinable), its value in use and zero D. All the statements are correct

D All the statements are correct

Which statement is correct determining recoverable amount? A. If the carrying amount is less than fair value less costs of disposal or value in use, it is not necessary to calculate the other amount B. If fair value less costs of disposal cannot be determined, then recoverable amount is value in use. C. For assets to be disposed of, recoverable amount is fair value less costs of disposal D. All the statements are correct

D All the statements are correct

Which of the following is correct regarding the recoverable amount used in the impairment testing of a long-lived asset? A. An asset's recoverable amount is the higher of its value-in-use and its net realizable value. B . An asset's recoverable amount is the lower of its fair value less cost to sell and its value-in-use. C. Termination benefits (as defined in PAS 19) and costs associated with reducing or reorganizing a business following the disposal of an asset are direct incremental costs to dispose of the asset. D. None of the above.

D None of the above.

Which statement is incorrect concerning the reversal of an impairment loss? A. The increased carrying amount due to reversal should not be more than what the depreciated historical cost would have been if the impairment had not been recognized B. Reversal of an impairment loss is recognized as income in profit or loss C. Depreciation for future periods is adjusted D. Reversal of an impairment loss is allowed when the recoverable amount of the asset becomes higher than its carrying amount because of the 'unwinding of the discount

D Reversal of an impairment loss is allowed when the recoverable amount of the asset becomes higher than its carrying amount because of the 'unwinding of the discount

Under PAS36 Impairment of assets, which ONE of the following statements best describes the term impairment loss? A. The removal of an asset from an entity's statement of financial position B. The systematic allocation of an asset's cost less residual value over its useful life C. The amount by which the recoverable amount of an asset exceeds its carrying amount D. The amount by which the carrying amount of an asset exceeds its recoverable amount

D The amount by which the carrying amount of an asset exceeds its recoverable amount

Which of the following is incorrect regarding impairment testing of long-lived assets? A. If impairment indicators are present, the company must conduct an impairment test. B. If the recoverable amount is lower than the carrying value, an impairment loss will be reported on the period's income statement C. If either the fair value less cost to sell or the value in use is higher than the carrying amount, no impairment loss will be recorded D. The impairment test compares the asset's carrying value with the lower of its fair value less cost of disposal and its value in use

D The impairment test compares the asset's carrying value with the lower of its fair value less cost of disposal and its value in use

Significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used include: I. The asset becoming idle. II. Plans to discontinue or restructure the operation to which an asset belongs. III. Plans to dispose of an asset before the previously expected date IV. Reassessing the useful life of an asset as finite rather than indefinite. A. I, II and III only B. I, II and IV only C. I, III, and IV only D. I, II, III, IV

D.

Which of the following is incorrect regarding identifying an asset that may be impaired? A. At the end of each reporting period, an entity is required to assess whether there is any indication that an asset may be impaired. B. If there is an indication that an asset may be impaired, the asset's recoverable amount must be calculated C. An indication that an asset may be impaired may indicate that the asset's useful life, depreciation method, or residual value may need to be reviewed and adjusted. D. PAS 36 has an exhaustive list of external and internal indicators of impairment

D. PAS 36 has an exhaustive list of external and internal indicators of impairment

External sources of information indicating that an asset may be impaired includes: A. Worse economic performance than expected B. Asset is idle, part of a restructuring or held for disposal C. Obsolescence or physical damage D. The carrying amount of the net assets of the entity is more than its market capitalization.

D. The carrying amount of the net assets of the entity is more than its market capitalization.

Which of the following assets is not within the scope of PAS 36, Impairment of Assets? A. Patents B. Exploration and Evaluation Assets C. Building D. Inventories

d) inventories